Suit Targets Health-Card Company

A Saugus woman wants to shut down the Texas firm, which promised her discounts at doctors and dentists in return for a $55 monthly fee.

Intrigued by a grocery flier promising to slash her medical and dental costs by up to 80%, Manuela Zermeno signed up her family of six for a Care Entree discount healthcare card.

But first one and then another of the dental offices that the company sent them to said it had never heard of the Texas-based company. And for nearly a year, Care Entree ignored Zermeno's requests to stop taking a $55 monthly fee out of her bank account, the Saugus stay-at-home mother said.

The Zermenos sued, and Care Entree, without admitting wrongdoing, settled for $25,000. Now, with the help of Neighborhood Legal Services -- a legal aid group in Los Angeles -- the family is trying to bar the company from doing business in the state. A hearing on the family's bid is set for today in Los Angeles County Superior Court.

"People need to know; it's a fraud," Zermeno said. "People are desperate for health insurance. These companies take advantage of that."

The Zermenos' suit is part of a growing list of complaints against discount health-card companies, a burgeoning industry with a combined 21 million subscribers across the U.S., including about 5 million in California, according to a leading trade organization.

Too often, the cards are not accepted by the medical providers the companies say will honor them or the discounts they offer are negligible, critics say.

A recent Georgetown University study found that four of five cards examined in the Washington, D.C., area were not honored by many of the medical providers on the referral lists. The fifth card promised up to 40% in savings, but the discount given was as low as 4%, according to the March 2005 report by researchers at Georgetown's Health Policy Institute. Advocates say families could do as well on their own by offering to pay doctors and dentists in cash.

Health discount cards are not insurance, but consumer and medical advocates say the issuers trick customers into thinking they are by using insurance-like language, such as "PPO networks."

"We and other consumer groups have grave concerns about what we believe are essentially scams," said Anthony Wright, executive director of Health Access California, a statewide advocacy coalition of more than 200 organizations. "People are being sold what they think is coverage, but it's an imaginary discount.... It's a way to prey on people who don't have health coverage."

A representative for Care Entree, a subsidiary of publicly held Precis Inc. in Grand Prairie, Texas, said the company should not be blamed for unscrupulous practices by others.

"Like any other popular, fast-growing segments ... you will have some disreputable bad apples that pop up," said Barbara Flood, chairwoman of Consumer Health Alliance and chief executive of Careington International, a discount health company based in Frisco, Texas. "Those companies are in the minority."

Care Entree was the subject of a deceptive-trade-practices suit filed by the state of Texas earlier this year. In a statement, Care Entree said the lawsuit was without merit and blamed another company that sells Care Entree plans for possible "inappropriate" marketing practices.

Other discount health-card companies have come under increasing legal and regulatory scrutiny. New York and Massachusetts last year fined three companies for exaggerating the benefits of their discount health programs, and Montana issued cease-and-desist orders against more than a dozen entities for selling "fake health insurance."

California, Alaska and Minnesota also have barred some discount health-card companies from doing business in their states.

The California Department of Managed Health Care, which began investigating the discount health industry last year, said most of the 100 card-selling companies it has examined probably are "not legitimate."

The Zermenos' lawyers argue that Care Entree is violating a state law by making medical referrals for profit.

"Whereas the department [of managed care] is trying to make them stop certain practices, we would put [the industry] out of business," said David Pallack, an attorney at Neighborhood Legal Services.

Care Entree said that the law applies to doctors, not discount health-card programs.

"The plaintiffs have a philosophical belief that discount programs are bad.... They think discount health cards will get employers off the hook" when it comes to providing health insurance to workers, said Recht, Care Entree's lawyer.

The Zermenos say they just want to make sure others aren't had the way they were.